Irish electricity regulators will not intervene to improve liquidity

The Irish energy regulators said on Thursday they would not intervene to improve liquidity in the redesigned Irish forward power market.

The decision was taken by CER and Utility Regulator following a public consultation on proposed interventions which ran from June to July 2016.

The regulators had put forward two measures to improve liquidity in the new market when it goes live in 2018, but these received a hostile reception from market participants.

The first was a forward contract sell obligation (FCSO), a regulatory intervention that would have mandated a minimum volume to be sold by generators in the forward market.

Participants’ reactions to this measure were mixed, with a number of respondents in favour of an FCSO in some form.

Some were in favour of the measure but only if it was placed solely on ESB – the market’s dominant generator. ESB produced 53% of all-island electricity in 2016, according to the utility’s latest annual report.

The second proposal was a market maker obligation (MMO), which would have required some larger market participants to ensure that bid and offer information for certain products was always available for trading. A similar measure – two daily hour-long market-making windows – has been in place on the UK power market since 2014 (see EDEM 31 March 2014).

But this measure received a negative reception from market participants, with respondents citing the increased risk that a MMO would place on market makers.

The regulators will undertake a review of liquidity in the I-SEM forward market 18-24 months after launch.

Structural problem

Of the consultation’s 23 respondents, 11 said that a lack of liquidity was a problem in the Irish market, while four said it was not.

The majority of those in the former group suggested that the liquidity issue was structural and could not be tackled by the interventions suggested.

These respondents pointed to the dominance of majority state-owned ESB as the main cause of liquidity woes.

Liquidity on the Irish over-the-counter (OTC) market has dropped sharply in recent years (see graph) as a result of the ongoing redesign ( see EDEM 09 May 2016 ).

The island’s single electricity market (SEM)is undergoing a full revamp in order to ensure it adheres to legally-binding EU legislation intended to align European energy markets and increase competition (see ICIS briefing on the Irish integrated single electricity market).

The redesign is in its third and final phase, with the integrated single electricity market (I-SEM) originally due to go live in October 2017.

However, the regulators delayed the market launch to 23 May 2018 after participants asked for more time to trial the new market’s systems. christopher.somers@icis.com